UNDERINVOICING OF IMPORTS IN PAKISTAN
| Author | MUNIR A. SHEIKH |
| DOI | http://doi.org/10.1111/j.1468-0084.1974.mp36004004.x |
| Date | 01 November 1974 |
| Published date | 01 November 1974 |
UNDERINVOICING OF IMPORTS IN PAKISTAN
By MUNIR A. SHEIKH*
In some less developed countries underinvoicing of imports is a significant
economic phenomenon. Restrictive import policies create incentives to defy these
restrictions through smuggling across the borders and underinvoicing of imports.
Underinvoicing of imports is just one of the many techniques of smuggling-in
(illegal import) of goods.
Any of the various import restrictions, such as import tariffs or quotas, ex-
change control, state trading monopolies or indirect taxes, can create incentives to
underinvoice. For example, underinvoicing of imports may be practised in the
presence of an import tariff. In that case the importer would save himself the
amount of tariff on the proportion of imports which he does not declare. We can
expect underirivoicing of only those commodities which are subject to various kinds
of import restrictions.
This paper examines the issue of underinvoicing of imports in Pakistan. In
Part I, we briefly describe the system of import controls as practised in Pakistan.
In Part II we discuss the technique used to establish the existence of underinvoicing
of imports. Finally, in Part III, we study Pakistan's case for the period 1985-68
and try to determine whether or not there was a relationship between underinvoic-
ing of imports and the import control policies followed by the government during
that period.
I. SYSTEM OF IMPORT CONTROL IN PAKISTAN 1965-68
Pakistan had recourse to strict exchange controls and import licensing during
this period. The Pakistani Rupee was overvalued at the official exchange rate
pegged at Rs. 4.75 to the US dollar. Under the exchange control regulations, all
foreign exchange earned by exporters had to be sold to the State Bank of Pakistan.
All imports were controlled by the government, and goods could be imported
(legally) only by purchasing a foreign exchange cover from the State Bank of
Pakistan.
The goods which were allowed to be imported were listed in the 'Import Policy'
announced by the Chief Controller of Imports and Exports. During the period
1965-68, this policy was announced annually or bi-annually. These policies out-
lined various categories of imports such as the Free List, the Open General Licence
(OGL), the Licensable List, a list of 'Items Other than Those on Free List/OGL'
and a list of goods importable under Export Bonus Scheme.' Each of these lists
* This paper is a revised version of one of the chapters of my (1973) Ph.D. dissertation.
Thanks are due to Professors J. C. Leith, J. R. Melvin and K. L. Avio, for their guidance and
suggestions in the completion of the thesis and the preparation of this paper. I am specially
thankful to Professor Leith for his staunch encouragement and support. Thanks are also due to
Professor J. J. Stern, for his comments on an earlier draft of this paper, and late Professor
T. M. Brown, and Professor R. G. Bodkin, for their various suggestions.
1The implicit exchange rate facing the importers under this Scheme was approximately
Rs. 121$. See Stern (1970), p. 22. 287
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